tv Bloomberg Daybreak Europe Bloomberg January 15, 2018 1:00am-2:30am EST
>> good morning. this is "bloomberg daybreak: europe." will. hit another record as oil approaches a three-year high. theresa may grapples over whether to bailout the embattled government contractor. riches.road to ceo says the carmaker can double profits within five years. off-road, the jeep brand. ♪
manus: a very warm welcome to the show. oil is rocking it out at $70. this is the state of the play on the wrist radar. you have got asian equities rising. in a good all of the markets up. it is martin luther king day in the u.s. we are approaching the self-fulfilling prophecy of growth. japanese markets are rising, even though the yen is driving. the is continuing to rise on the back of kuroda's comments. will softbank go for the idea? in here.n, it's kuroda expects cpi to pick up to the 2% target. japan's economy is expanding
moderately. what happens next for the bank of japan? that is what the markets are asking themselves. they are asking the same question of draghi. cabele rallied by nearly 1% on friday. you're hitting post-brexit referendum lies. what could spoil party? it could be the germans. they could get rid of all of this euphoria with a softer brexit. that is the risk in the market. though i have to hand it to ing and mr. patel, 1.59 looks moderately more possible than 1.30. market raises net long positions on the pound. that is as long as it has been since 2015. i mentioned oil. oil is punching it out. brent crude, $63.30.
you have brent trading above $70. nas soon as we are popping above $70, the figures in the u.s. come back, adding the most amount of new rate in six months. they are emboldened. you have opec really tethered by this level. will they continue with the current strategy? hot money is driving the price of oil, but hot oil is driving the movement. this is what we see. topping oute rigs, at this level. there is a lovely piece on the bloomberg this morning. s areasts for oil, market rising, oil is bid. the yen is even bid. markets willf fx
be where the real movement comes from. juliette saly has the first word news this morning from singapore. juliette: manus, donald trump -- emily thornberry last outed trump after he called off his plan to visit london next month to open the new u.s. embassy, saying he did not like the new deal. >> he is an asteroid of awfulness. i think he is a danger. i don't want him to come to the country. i don't think he should have been given an invitation in the way that he was. i think it was wrong for theresa may to prematurely give him arkw. i think it is humiliating for the queen. juliette: president trump told reporters he is the least racist person. the follow-up continues after remarks he made regarding
immigrants from africa and haiti. collapsed. officials said several people have been injured, adding there was no explosion. the stock exchange billing also local the world bank's office. the british pound's rally could be vulnerable this week. analysts say sterling could come under pressure this week. ceo iswere told that the still planning for a hard exit from the block. >> we are still going full steam ahead. this will look after the 2027ness during the eu market. we are going false in the head as this will be a hard brexit. we will be up and running by
january 4, 2019. juliette: saudi arabia sovereign wealth fund is considering borrowing from banks for the first time. according to people familiar with the matter, they could raise about $5 billion this year. a spokesperson for the pif declined to comment. this went down yesterday afternoon, leaving a four square mile oil spill. and collided with a boat on january sixth. it was carrying almost one million barrels. it is a toxic and highly flammable carbon. global news 24 hours a day, powered by 2700 journalists and analysts in more than 120 countries around the world. you can find more stories on the bloomberg at top . we are just talking about that explosion that bloomberg just heard about on the jakarta exchange.
the jakarta composite, fairly flat. 15 hang seng though, up for sessions in a row and on track for a record finish. the nikkei closed higher in australia's market was boosted today by the players. it is all about the softbank , that it could be selling off the mobile unit. the nikkei says the option to bring in $18 billion. tencent rallying today, though a little off the highs. chemchina, leading this rally that you see. t, thekes of tencen casino, lifting the rally for a 15th straight session of gains today. pretty.hink you u.s. stocks and bonds markets closed today for martin luther king day.
hit a keytreasuries psychological level, breaking above 2year yield, just for the first time since% the financial crisis. , my question is simple. here's the two-year yield. last week i stood up there on monday morning, quoting bill gross, quoting gundlach. they're all: the death of the bond market. >> i think it should we are in an upward trend on inflation. what was interesting was how the bond market and the dollar reacted to that. we saw the initial spike in treasury yields. that pretty much gave most of that back by the and of the day. we are on a sustained move higher. i think what is most interesting as well, we have seen through the end of the bond bull market, we have seen the two-year move
higher because the fed has been considering higher rates. but it has not moved anywhere near as much. manus: the market is saying the probability of higher rates is more or less something we should be considering. you think we will get more than three rate hikes, which will move that two-year yield? >> >> yes, i think we will have four hikes this year. the fed has been on a quarterly tightening cycle, the one time last year where it did not actually raise rates, it still tied and policy by announcing the reduction in the size of the balance sheet. economics and the financial conditions as well. markets have been on fire and they have to touch that break a little higher. i think a quarterly path to rate hikes should be the best case. manus: the other dynamic is this, we have got a rerate.
what will come back to that? the bank of japan, the ecb. we will touch on each of these, but that isn't terms of u.s. versus europe. i have got the bond market moving. to what extent will the u.s. markets outperform the bund counterpart? >> i don't think bunds -- manus: i'm sorry, bonds. termst is interesting in of that deferentially the market in the short-term is starting to bring forward when the ecb might start hiking rates. in that sense, the differential, it is starting to diminish a little bit. that is one of the things has supported the hero strength against the dollar. -- that has supported the euro
strength against the dollar. manus: this is the u.s. bond on the two year spread. out?think that has topped >> well, at this particular point in time, we do think that the market will keep on going to the process where it starts reassessing where the ecb is going to be. it is they came back from the december meeting were illustrative in that sense. if you look at forward rates, we are looking at a conversion. manus: in terms of the story, if i look at the cpi sales and retail that a, excluding energy on friday. they say, you have got medical goods, vehicle pricing -- those are the headlines. if you look at services, tightening housing market, to you find any dramatic dollar weakness?
fairly tepid hang up. that ties back to the dollar, isn't it? how important is the dollar. we see a weak slide in the drawdown of the dollar. join the dots for me. >> you are right. the dollar is rebalancing the global growth we are seeing. part of that story is how it feeds into initial conditions. when we look back and think about when we had that very period of dollar strength, the impact on the u.s. theomy, now we look at it other way. we are a three-year low. fed more give the comments the inflation pressures
from china and the rest of the world. we are not seeing any evidence that it is really picking up. there are people think, inflation is coming. we have not seen it come through -- certainly not come through sharply. the underlying trend is one way it is drifting higher. manus: so, we are looking at four rate hikes from the federal reserve. on the 10 year government bond bex rose tot 21,000 -- the most short the market has ends is less cheerful the volatility is nowhere near where we were -- this is something i looked at. near where we bac were in 2014. i am concerned there is not enough volatility in the market
if there are four hikes. >> it is a good point. i think when we saw the volatility -- manus: b i will put up the -- i will put of the bond volatility charts. it takes you back to 2013. >> a temper tantrum. it was all about the perception of an unexpected shift in the fed's monetary policy reaction function and what that meant. by now we are getting the market is in the process of thinking the fed is not changing very much, but we need to be pressing a little bit more. we have seen a decent amount of repricing. your point is actually will made . vol is too low.
i believe we will get more volatility across markets will another aspect about the church 's we have a huge increase in the amount of people in debt. supply coming into the markets. wo reasons. one, tax cuts. fed's balance sheet reduction, which would give them apart -- manus: apart. [laughter] >> the balance sheet treasury terms will shrink $230 billion this year. the estimates we have done 2017, net7 trillion worth of liquidity. this year we recommended to be 700. and we will have this tug-of-war thing. it will keep recurring between the end of the flow of central banks against what is actually happening.
in which one wins out. i think it will be a source of volatility. david riley, the head of credit strategy. this is what we have got. if you have got to turn up the tv, you are hopping on the tube or metro, we are on dap in the london area. they are starting a conversation on greece, where lawmakers will vote today on measures that include the third bailout. brexit barriers. theresa may's u.k. withdrawal bill. can she get this legislation passed. we discuss is later. nnd later, carillion i
manus: in hong kong, 2:20. libby hang seng, building it up, up ond ay 15 of straight gains. 8%aas gained by more than during that period. here is what you should be watching today. the u.s. equities and bond markets are closed. futures are open on u.s. treasury. if you get bond use, you will be able to hedge yourself. it is martin luther king day. thursday we get fourth-quarter assemblyg with in
industrial production. but it was the deadline for the potential u.s. government shutdown. mike pence is scheduled to travel to the least. juliette saly is standing by. isiette: the u.k. government grappling whether to bailout as it works on everything from hospitals to the high-speed rail project. the company held talks yesterday to ask for the 300 million pounds it needs by the and of the month to remain afloat. a spokeswoman declined to comment in the government declined the concerned meeting. chrysice their's -- ler's ceo told bloomberg that jeep could grab as much of 30% of the global equity market. he also said that u.s. tax cuts
would serve profit about $1 billion. they are considering an initial public offering for the mobile public phone unit. the company says lifting the that he want to be option. the have been examining ways to unlock value. morgan stanley has been selected with goldman sachs among the initial public offering. credit suisse and deutsche bank have also been chosen to work on .he ipo they could have seen the company target evaluation as much as one he does not immediately respond. the executive chairman has called for nafta to be reworked. rather than jump completely. the old foreign speaking to
bloomberg at the north american >>ional auto show in detroit to do something that drastic would not be something that we support. modernize nafta. we can get some currencies into nafta, but it has been in place for a while and has service industry well. juliette: that is your bloomberg business flash. manus: theresa may? -- theresa may returns to the house of commons today. both say they will oppose the legislation as it stands. meanwhile, you had u.k. inf lation. here's a look at what to expect. it could possibly start slowing down. ure a price growth to 3%.
the rest of the world. i think it is quite fortunate for the u.k.. that is underpinning the strength of the pound. is being affected by the global tied. the u.k. could be looking a lowers. i have not looked at the principal rome for a long time. i think we have moved off monday to a slightly better street. a lot of you will see this around bloomberg. finally the dutch are pushing for a soft brexit. sterling is rising. -- arelians are key not we all just getting a little bit too enthusiastic.
i was waiting outside with the broader. do you think we are getting a too fast? too far for example, on the pound. that is one litmus test, isn't it? >> we are probably getting a little bit ahead of ourselves yeah what really mattered if what is going to be the german french physician. to comely now managed to a coalition arrangement. -- you cannotin expect to cherry pick. behink that is going to
tokyo there.a and the dollar-yen is where the action is. you have asian stocks rising. as one of those moments when your hit your head. here comes kuroda, on the take. don't worry about it, we expect cpi to hit the 2% trager. economy will expand moderately last week. the reduce the amount long bonds they have purchased. what comes next from the rereading settlement activity.
let me take you to the asian equity markets. we are heading for a fresh, record close. it really is green, dominating the region. japan, in china, south korea and hong kong as well. the hang seng, still on that record winning streak we were talking about last week. asian equities, bid. a love currencies are bit against the dollar when it comes to the fx phase. of course he responds normal human things. hit a three-year high. it is going above 1.22 in today's session. w euro-dollare at 1.224.
we've got how bad of german politics. i am also looking at sterling because that hit the highest levels since brexit. the stock price is not quite showing there. they seem to move on report that spain and the netherlands could be backing a soft brexit. but of course, a lot that could come from the dollar as well. i want to show you oil, trading near a three-year high. you can see that brent is our the european central bank is struggling again. he does whatever it takes to get and thege across before 2018.
no hikes will come through after the asset purchase program. management, het is winning. if you put them to side, the market tolerate him. he struggling to get this message across, or maybe the market is right. maybe it is time for a fundamental rethinking of foreign gardens. they are looking at ecb policy come in terms of breaks. they want to know how it is possible. iere is the concern that
think that is going to be a little bit of a concern. included a 10 point site during december of 2018. guy: that is a big move. 76% probability. is that too far? >> i think it is gone too far, too fast. we have an eecb that will speak with the asset purchases insult december. and then not only do we have to see embarked, but then, you
we still have a very steep curve. we have a negative short great. it is pulling down. the stigma to that curve means it is very expensive to be doing unds. on b you paid to be as long as you can get. there is still ha scarcity of tight assets. germany is running a nice, big company. them orld be spent on infrastructure. last time we were in berlin it was not a great experience. they are actually paying down debt. we have this on the supply side as well, quite a contrast to the treasury. the u.s. is pumping out more and more treasuries. manus: i have got this for you. -6460.btb this is the bloomberg barclays
index. the stock with a negative bond has dropped they over $1 trillion. that's since july of last year. that is the personification of the rethinking of the global central bank, isn't it the bank of japan, the european central bank, the fed and even the bank of england, -- tell me what this ttall of negative yielding deb says to you. >> it says we are in a transition away from negative rates, eventually.
that is the yield and the hunt for income is still on amongst the love investors. if you put a little bit of a cap on how fast treasuries can break tot he upside, in the short term at least, it is starting to look quite attractive on the tenure. we still have seven plus trillion dollars worth of that was wrong. rather than necessarily being institutionalized. why you short on guilt question went --
why are you short on guilt. we are looking at large, structural, fiscal antarctica deficit. we don't have in the united kingdom anymore support consensus around the market economy, or the fundamental business and social models of there are not enough risk premium prices for brexit either. if we finish the trade on friday. where we go from here? grow to onesily that:55 -- we can easily grow up to 1:66 pom.
thank you very much. you have all the functions that we use. check that david and i have been referring to. you can add in to that pop in a question for david or myself. now to our top corporate stories. sergio said the company can double the profit by five years. his spokesperson said cheap could grab as much as 20% of the global suv market. there were 5 million deliveries a year. on set.ins us it is all optimistic and done in the name of the future of the old brand. >> absolutely.
profit fait could double within five years. this is a two hour interview that he gave. and while the interesting things was his message to carmakers in general. he basically said, you need to adapt or die. the carmakers have less than a decade to reinvent themselves. he really made this distinction between what can be commoditized when it comes to calls and what is part of the brand. you also confirmed plans to step down next year. plan no is five-year
this is a thing. it is about focusing more on those brands. the shift to the higher margin. mark uni has been doing this, something he has been praised for. that brings us on to something else, which is a vote, another story we have been looking at this morning. unveiling a version of the revamped get off. this is about helping to list the band out of relevance in the u.s. focus.. is in pause in the strategy to use more popular machines to woo buyers.
they are trying to deal with the following of the diesel emissions scandal. thank youra cehic ,t very much. spending $3 billion in the quest for u.s. relevance. coming up, u.k. crisis. the u.k. government grappling whether it can bailout the structural reform. and brent bullish. oil outpacing analyst forecasts as prices trade at a thee ye ar high. ♪
-- future stocks are trading. you have the bloomberg dollar index, another bush lower, fore the fourth day. the market is adding to their positions. weeke looking at the fifth of a push lower. we are seeing equity markets trading at record highs around the world. the u.s. equity futures are open, though the cash market, 2793 in the u.s. four rate hikes in the u.s. from the fed. the stock exchange was evacuated in indonesia earlier today after the floor at level one in tower two collapsed. go to jakarta. what is the latest there? >> well, we just got
confirmation from the police that the assailant was not due to any bombs or attacks. it was definitely the floor on top of the main lobby that collapsed. the reason for this is unknown. obviously, trading was interrupted at that juncture. that has been reinstated? give us a sense of the impact? >> they happen to during the break. so it at the lunch break, did not interfere with trading. they plan to delay the second session by one hour. so, the trading has resumed. dci opened flatg\ at the afternoon session. opened flat at the
afternoon session. manus: it is great to hear that the situation is back under control. you are talking about the stock two 30e as a complex of floor towers. -- damage i in talking about the damage i am talking about was continued in 1998. the u.k. government has a new set of rules, grappling whether to lay the debt burden. ofy employ tens of thousands people. the company was in talks with the government yesterday to ask for 300 million pounds. it needs to stay afloat for the end of the month. we are now joined by benedict. if i take my mind back, i can see the broadsheets tomorrow.
if the supplement gets a 300 million pound lifeline to carillion, the cries will be, why have you not bailed out people who are providing nhs beds, who are looking after the roads and railways? good enough for banks, but not the nhs. >> that is exactly the problem here, isn't it. damned if you do and damned if you don't. ?here was the trillion board did they not see this coming. this company had tentacles in all areas of u.k. business. they had school, they worked behind the work. they do meals. they make government contracts. there is a real interest in for the government to do something. where his parents disappeared would be much more dramatic than
a department store. manus: we got a red headline coming through from carillion. they have accepted into compulsoryc liquidation. ilion will go into compulsory liquidation. they have faced demand for a $300 million lifeline from the government. that looked like a last ditch carillion -- it seems to have fallen on deaf ears. it appears they are going into liquidation. the question will be now what the government responses in terms of taking these contracts back in the house. the ramification for the british public's germs. there are 1.4 billion pounds of high-speed hs2 contract. july 17 that on
last year. the company maintains 247 acres of facilities. patientpare 85,000 meals daily. schools in this country. this has the far-reaching implications politically and socially. >> that is absolutely right. for a company that is now a shadow of its former self, it has that central position within economy. is going into liquidation. the question is, what does this mean for the big group of pensioners, and will they take another wage cut? will somebody come in, take over carillion? we have seen a lot of consolidation within the u.k.
and european construction pace. manus: we will take you through steps to enter into compulsory liquidation. it is an unfortunate time for you to be with me, as benedikt says. there's a pension shortfall that employs thousands of people around the united kingdom. the board has no choice but to take steps to enter into compulsory liquidation with immediate effect after the talks to keep financial stakeholders, including the u.k. government has come to an untimely end. officialcipate a receiver will receive that notification from the high court. will there be any kind of night
to pick over the bones of caril lion. we will bring you more on that story. the oil market -- the highest close in nearly three years. we popped in above $70 per barrel this morning. bloomberg's iae director gave his view on the market in 2018. have about $70 and then we look at the year 2018. global oil demand will increase to 1.4.3 million barrels a day. there is a lot of oil in the market.
the market is blocked unless we have some suppressions. birol.that was we are now joined from abu dhabi . -- we are now joined from dubai. what are the keys they have been talking about over the weekend? non-opeceing opec and maryland to fruition. the factors are back, yousef. ousef: yeah, they are with piles of pressure on opec and non-opec. the reason we got earlier in the week were voices of consensus. the iranians say the price levels we are seeing recently as to the risk of thieving into another u.s. sale. we did not hear that over the weekend.
folks were all the same page, saying the cut needs to be in the same place. it is too early to react. we need to see whether the current price level is sustainable. of hot moneylot driving brent crude's up to $70 per barrel. in my conversation with ed morrissey, he said there will be a lot of other conversations about fickle asset classes. with the weak dollar clouding the equation. you can see a bailout, perhaps another chart, possibly higher. ultimately, demand story is still another variable. any possible supply could turn it around. manus: thank you, yousef gamal el-din in dubai. a quick word of thanks to even riley. -- to david riley. got innately, carillion
under pressure like never before. and it's connected technology that's moving companies forward fast. e-commerce. real time inventory. virtual changing rooms. that's why retailers rely on comcast business to deliver consistent network speed across multiple locations. every corporate office, warehouse and store
near or far covered. leaving every competitor, threat and challenge outmaneuvered. comcast business outmaneuver. manus: the u.k. government contracted success to enter into compulsory liquidation. the recovery rally rose on. global stocks hit another record as oil approaches its three-year high. off road to riches. the ceo says the carmaker will profit in five years, pushing the jeep brand. welcome to "daybreak." it is 8:00 a.m. it is one of those seminal
moments we look forward to on daybreak. they turned on the lights. certainly with some of the equity markets. asian equities punching it. our top headline is about carillion. the social and political risk will be critically important. asian stocks rising on the back of the growth story. sterling is up, hence the reason why you are seeing this. takeindecision on where we the u.k. market this morning. commodities are rising as well. they are big oil, and all going to deliver their numbers this week, so that is going to really play hard and fast with the u.k. pips.tures of by 30 we get that later on. tone and will set the the united states of america with goldman sachs and morgan stanley. they are all going to add into this melee of discussion. mr. macron -- will he be as effusive as the dutch and the
spanish are in regards to potentially a soft brexit? me personally, thinks not. let's take a look at your risk radar this morning. this is what we have got coming in stocks belting it out through rise. of 2%. make a cpi this is the shift in gears we have got. shift has dropped for eight days in a row, dropping by $1 trillion over the first eight trading session. kuroda repricing dollar-yen. nikkei is rising. you have a strengthening in the yen. you have the nikkei continuing to rise. this is a thing of beauty. whether you are long sterling or not -- vote, we areit seeing the strongest level on cable. how horrible is cable -- vulnerable is cable to german rhetoric?
the luxenberg prime minister end to binary thinking. the market however has raised its long positions on the pound the 25th ofsince august, 2015. we were all too overexcited on the pound. currencies is driven by the softness in the dollar. you are looking at the index dropping nearly 1%. we are adding to that momentum. those are your markets. if look at the bond market. view fromere the bluebay would be that perhaps you are a little bit too in your rereading of the u.s. treasury market. you're going to get for great -- break heights. it is martin luther king day. they are flat at the moment. they are saying is four rate hikes from the federal reserve. it will not be a similar taper
tantrum, but perhaps a drift higher. you will see central bank come in and buy the bonds at 2.6, 2.7. .at's up we are shy of the .6% yield in germany. draghi's message going on hold? a move in is pricing rate in december of this year. two hikes going into june of next year. these markets are beginning to rerate, reprice, and reconsider interest-rate risks for 2018. those are your markets. let's get to juliette saly. she has everything else going on in your first word news. juliette. juliette: carillion has said it will take steps to enter liquidation. the company said its board has concluded it had no choice but to take steps with immediate effect. that decision came after talks with key financial and other stakeholders including the u.k.
government. u.s. president donald trump is -- thornberry lashed out at trump during an interview with the bbc after he called off a visit next month to open the new u.s. timothy. -- embassy. >> he is an asteroid of awfulness that has fallen on the world. i think he is a danger, and i think he is a racist. i don't think you should have been given an invitation in the way that he was. i think it was wrong for theresa may to so prematurely give him -- i think it embarrasses the queen and it is humiliating for her. i think it is wrong to have brought her into this in this way. juliette: meanwhile, president trump has told reporters he is the "least racist" person. that is as fallout continues hem vulgar remarks reportedly said.
been evacuated. officials said several people have been hurt, adding there was no explosion. the british pound's rally may be vulnerable to heightened sensitivity from comments from e.u. leaders on the prospect of such a deal according to analysts is a sterling may come under pressure in germany -- told bloomberg that she is still planning for a hard exit from the block. are still going. ahead on our plan to open up in brussels. this will look after the business from the e.u. 27 market . about 2 billion euros of business for us. we are going full steam ahead. this is going to be a hard brexit. we will be up and running by denard first, 2019. -- january 1, 2019. juliette: -- it seats investment
in the kingdom and abroad. according to people familiar with the matter, the public investment fund has helped talks with international banks and could raise $5 billion this year. a spokesman declined to comment. the iranian tanker that burned for more than a week after a collision off shanghai has exploded. it went down yesterday afternoon, leaving a four square mile oil spill. all 32 crew members are presumed dead. it collided with a carrier on january 5 that was carrying almost one million barrels of a toxic and highly flammable hydrocarbon. global news, what to four hours a day, powered by more than 2700 journalists and analysts. you can find more stories on the bloomberg at top . we are closely watching the hang seng index. into negativeped territory. hold on to that level very closely in the next hour of trading in hong kong.
that is of course breaking that record streak. the nikkei closed higher by .3%. gold stocks boosting the australian market. the kospi closing higher by .3%. the regional benchmark index in asia at yet another record high. in terms of stocks we have been watching, the casinos have been powering the hang seng higher after broker upgrade from cic c. softbank in focus. we have been watching this stock, a korean stock that has interest in some of the cryptocurrencies. it fell quite heavily last week when south korea clamped down. we are hearing that south korea will not immediately seek a crypto shut down deal, according to some news. manus. thank you very much, juliette, with the latest in singapore. u.s. stocks and bull market's
are closed today. that's for martin luther king day. the futures markets are up and running. aboveo-year yield jumped 2% for the first time since the financial crisis. fund manager joins me this morning to decipher these markets. sales are good, a bit of inflation on the way, attack steel, and jpmorgan are telling me they are setting the table. now for bigger dividends to come. i can hear winston churchill around here. never had it so good. [laughter] guest: conditions are very good. the interesting thing is compared to the skepticism of months ago -- [laughter] manus: the one. guest: when investors -- manus: go on. guest: you are seeing a clear shift in risk preferences. 2016, post-brexit,
that has been eroded as the recent facts are showing the global economy is in good shape. manus: we are in good shape. this is the s&p 500, 11% higher than it to hundred day moving average. this goes back to the key point. love have a look at this shot, which is valuations. the s&p trading at the widest level, the 200 day moving average since 2013. that is a most since 2002. the slow tax, given drift within the said, does that kind of market remain a draw? tristan: i mean, we see equities more attractive outside the u.s. than in the u.s., because if you look at, say -- i look at things on an earnings yield basis. if you look at the earnings yield basis, you can still get something like 6.5% earnings yield, which is a s good i
guess. if you compared -- as good a guess. if you compare that to real interest rates in cash rates to the u.s. and negative across the spectrum in europe and japan, across the yield curve, the 6.5% over the global equities versus these low levels in the bond market, medium-term perspective, i think equities is the place to be. manus: equities is the place to be. , our guestlast week was ramping on. it is not really the death of the bond market in my mind because it is nowhere near the volatility. guess in the bond market is when you see a fundamental unseating of where you think rates are priced. i don't think we are there. i don't think -- we are getting so much forward guidance, it is going to be -- equity could be spiky.
it does not look anything like 2013 13 in terms of the taper tantrum. 2013 in termske of the taper tantrum. see an: if you were to structural long-term increase in the level of inflation that we are experiencing, you would need that to get to the much higher at various stages in the last 20 years to 30 years. but real yields are very low, so one would think that they should move higher. you compare them to 2013, the u.s. to your yields are at 2%, as you just saw. two-year yields are at 2%, as you just saw. manus: do you think you get a more aggressive -- i am trying to work out what is it that perhaps unseats the bond market? benevolent onnill
volatility. what does it take to invoke volatility at that kind of level in the bond market? i am comparing it to 2013. it could be fair. you're saying i should max that out and have a look at volatility over a slightly longer term period of time. what is it that unseats volatility? do you think we will have a standard return to inflation in the united states of america? tristan: i don't have a massively strong view in terms of inflation. that has been the old cyclical shifts, but if you look structurally, you know, the fed funds rate was at 6.5% in 2000. if you look at the inflation rate would was dominating over that period, late 1990's and early 2000, it was not all that different to the inflation rate today. what was different if you had a much stronger global economy at that point in time. the u.s. was growing at 3.5% to 4%. and you had high real interest rates, whereas in this environment today, we have got low real interest rates. volatility, i think, comes when
people have felt comfortable about a spoon view of the world -- certain view of the world and you get a correlated shift in belief that really everyone has to shift, shifted the goal post in what they are comfortable with. , you know, a move from the ecb over the next 12 months or so, japan, some noises that maybe they will follow, if you see the global trend towards interest rates on the up as opposed to just the u.s., maybe that will be what shifts it. manus: the one thing i was chatting about with david earlier -- i am finding the chart, the amount of negative yield in bonds. 6460 is the chart you want to have a look at. this is the amount of negative bonds in the world, with the best eight trading sessions of 2017. i am a bit like a rat up a drainpipe. the stock of negative bonds has
to medically. you put it in context for me. 7.37, the smallest since july of last year. that is telling me personally, that is telling me that that is something very much going on in terms of our understanding of where global central banks would be by the end of this year. take it job is to forward. it is to extrapolate forward. that chart, in terms of this stock of negative bonds out by $1 collapsing trillion, is that something you pay attention to? tristan: not that. it is an interesting fact, but i mean, why would you earn negative yield in government bonds anyway? a bit of the german figh five year yield, it has risen modestly, but it is still five basis point. if you look at the strength of the european economy, why should interest rates average negative levels for the next five years? manus: before the end of the year? tristan: --
across the curve, i think the level of interest rates implied in those longer-term yields, for me, they are too low. whether they go this year, next year, or even later, on average, over the next five years, i think rates are going to be higher than what the market is pricing. manus: the euro, punching out a three year high in the euro, that ties back to the equity story. at what age does that become a problem? the cliche market discussion. the euro is strong. and there is this view that mario draghi and his message somehow has got, you know, pushed into the background. does the euro continue higher for you? where are we this morning? owndollar has got its idiosyncratic issues. 122.15. people are saying that were values are around 125, 130. does the euro trade higher for you?
tristan: i think it is tough to call dollar euro. i think you are getting better value and some of the emerging-market currencies, to be honest, where you are getting the high real yield. being,or the time unattractive from a carry point of view. the fundamentals have been improving and there has been bigger growth in europe and the u.s. manus: you stay with us. just a couple of lines to bring to anybody who is tuning in. the city ofn london. 8:17 from europe. this is our top corporate story on bloomberg. carillion will take steps to enter into what's called a compulsory liquidation. u.k. government contractor has said that is concluded. it had no choice but to take the steps with immediate effect. the decision came after the talks with key financial and other stakeholders, including the u.k. government. we will talk about that shortly. to give you a bit of a hint in terms of what they look after, you were talking about a company that -- they deliver 18,500 -- they carry out maintenance contracts and look after one
million square meters of the national health. all caps facility's. 875 nationwide. ramifications broad and deep. it will be wiped out here in will there be a white -- this will be wiped out. get?will the bondholders that is the question we start our monday morning trading with as we go into liquidation on carillion. we will talk much more about the u.k. markets when we return. this is bloomberg. ♪
steps with immediate effect. the decision came after talks with key financial stakeholders, not least, the u.k. government. this is the issue. this is the debt within carillion, 172.877. you are seeing this level of total debt. were throwne issues up as early as the middle of last year, as you can see through that is the stock price. we are entering liquidation for the bond market. it is going to be perhaps a savior out there. what level of payout will they get in terms of these bonds in the liquidation situation? let's get to benedikt kammel, who joins us with the story. let's start with the political ramifications. i can already see the tabloids tomorrow morning talking about the politics of bailing out banks, but not bailing out people who deliver 18,500 --
the news runs down in crisis. yes, that is exactly the issue. the u.k. does not have a nation in bailing outcome -- an issue in bailing out banks. this is what we have seen here now. we have the talks over the weekend between carillion debtholders and the government. the government is very involved in this, and they should be, because carillion has been a central place in the u.k. economy in terms of the public profile, in terms of work to do from high-speed rail to building hospitals and that sort of thing. it is not a company you desperately want to see go into liquidation, but that's exactly what happened here now. they needed 300 million. they would not get it. this morning, they pulled the plug. this is it. we need to do this compulsory liquidation. manus: how did we actually get to this position? if you read the
bloomberg story this morning, it talks about the debt levels and profit warnings that came through last year, just after they were awarded quite significant, quite significant contracts from the government. we will begin to question, due diligence and whether that was exacted correctly and on a timely basis before awarding the contract. surely, that is the key question here. benedikt: yes, that is a bit of a head scratcher, isn't it? if you look at the chronology -- carillion was for the longest time, you know, considered a well-run company. it had big contracts, overseas business. they went on a shopping spree, bought a couple of other u.k. construction companies. audaciously, they tried to buy the country's number one. did not work. gives you a sense of confidence behind the company. and then, things rapidly started deteriorating. we had the profit warning over
the summer, and just a couple of days later, the u.k. awarded almost 2 billion pounds worth of contract. that is going to lead to a lot of questions like what did the u.k. government know? how could they have done this? was this poorly managed? were they throwing them contracts just to keep them going? these are questions people will be asking going forward. really, this is a company that used to be worth 1.8 billion pounds. now, 60 million pounds, which is nothing. and we will probably see that value go down to zero today. manus: as you said, potentially going to zero on the equity side. let's see what the bond market makes of that. think you for joining us. a little bit of breaking news coming through from -- this morning. they are talking about tallying up. they delivered with a net number . iny delivered 718 planes
2017 persist 688 and 2016. a nice step up for airbus. 776 jet orders in december alone. keep an eye on airbus as they start the trading day. let's have a closing thoughts on these markets with my guest in terms of the banks. you mentioned -- tristan henson, you have been very patient. jpmorgan said they put a down payment down in terms of payout. do you like the bank? tristan: it has been a favorite sector of ours. expectations are very pessimistic. valuations versus the broader market. from a portfolio construction point of view, they have been quite attractive in that they are a beneficiary of rising rates. the market might come under pressure if the rates go up further than people think, as a have been rising. manus: and it is -- it is going to be a big weekend in terms of the banks. we have bank of america,